Like everyone else, elite investors make mistakes. Some of their top consensus picks, such as Amazon, Facebook and Alibaba, have not done well in October due to various reasons. Nevertheless, the data show elite investors’ consensus picks have done well on average over the long-term. The top 30 S&P 500 stocks among hedge funds at the end of September 2018 returned an average of 6.7% through November 15th whereas the S&P 500 Index ETF gained only 2.6% during the same period. Because their consensus picks have done well, we pay attention to what elite funds think before doing extensive research on a stock. In this article, we take a closer look at Archrock, Inc. (NYSE:AROC) from the perspective of those elite funds.
Is Archrock, Inc. (NYSE:AROC) a superb stock to buy now? Prominent investors are in a pessimistic mood. The number of bullish hedge fund bets retreated by 1 recently. Our calculations also showed that AROC isn’t among the 30 most popular stocks among hedge funds. AROC was in 15 hedge funds’ portfolios at the end of September. There were 16 hedge funds in our database with AROC holdings at the end of the previous quarter.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the market by 18 percentage points since May 2014 through December 3, 2018 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
We’re going to take a peek at the recent hedge fund action regarding Archrock, Inc. (NYSE:AROC).
How have hedgies been trading Archrock, Inc. (NYSE:AROC)?
Heading into the fourth quarter of 2018, a total of 15 of the hedge funds tracked by Insider Monkey were long this stock, a change of -6% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards AROC over the last 13 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Millennium Management held the most valuable stake in Archrock, Inc. (NYSE:AROC), which was worth $12.2 million at the end of the third quarter. On the second spot was Citadel Investment Group which amassed $5.8 million worth of shares. Moreover, Renaissance Technologies, Algert Coldiron Investors, and GLG Partners were also bullish on Archrock, Inc. (NYSE:AROC), allocating a large percentage of their portfolios to this stock.
Judging by the fact that Archrock, Inc. (NYSE:AROC) has faced falling interest from the smart money, it’s safe to say that there is a sect of hedgies that elected to cut their positions entirely heading into Q3. Interestingly, Clint Carlson’s Carlson Capital sold off the biggest position of the “upper crust” of funds watched by Insider Monkey, worth close to $8.9 million in stock. Joel Greenblatt’s fund, Gotham Asset Management, also cut its stock, about $1.1 million worth. These transactions are important to note, as aggregate hedge fund interest dropped by 1 funds heading into Q3.
Let’s now review hedge fund activity in other stocks similar to Archrock, Inc. (NYSE:AROC). These stocks are ForeScout Technologies, Inc. (NASDAQ:FSCT), iShares PHLX Semiconductor ETF (NASDAQ:SOXX), Hub Group Inc (NASDAQ:HUBG), and Core-Mark Holding Company, Inc. (NASDAQ:CORE). All of these stocks’ market caps are closest to AROC’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| FSCT | 16 | 183943 | 4 |
| SOXX | 2 | 4285 | -2 |
| HUBG | 21 | 319525 | 1 |
| CORE | 19 | 89247 | 6 |
| Average | 14.5 | 149250 | 2.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.5 hedge funds with bullish positions and the average amount invested in these stocks was $149 million. That figure was $30 million in AROC’s case. Hub Group Inc (NASDAQ:HUBG) is the most popular stock in this table. On the other hand iShares PHLX Semiconductor ETF (NASDAQ:SOXX) is the least popular one with only 2 bullish hedge fund positions. Archrock, Inc. (NYSE:AROC) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard HUBG might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.
